Overview:

Introduction

Growth in UK retail deposits gathered momentum during the credit crunch as consumers looked to boost their savings levels. Currently the level of competition in the market has seen some providers offering a product with a much greater return than would be expected from the historically low base rate. Going forward regulation is likely to have an important role in the market.

Features and benefits

* Analyses the level of competition in the market using measures such as average rates and advertising expenditure.
* Provides market share data for the different competitors.
* Provides forecasts for the overall level of retail deposits in the market over the next four years.
* Considers the impact of new entrants into the market.

Highlights

Around two-thirds of the UK population has a savings account, with the vast majority holding an instant access account. This illustrates that consumers continue to place importance on the ease of access to their funds in these uncertain economic times.
Over time the large players in the retail deposits market have increased their share. In 2005, the top 10 providers had a 46.1% share of the market but by 2009 the top 10 had more than three-quarters of the market between them.
Some large savings account providers offer a highly competitive savings rate for those who have an existing current account relationship with the provider. This is tying the customer in by giving them less of an incentive to switch their current account and so the bank can build on this relationship with their customer.

Your key questions answered

* Gain insight on consumer attitudes to saving through Datamonitor's proprietary Financial Services and Consumer Insights survey.
* Use Datamonitor's market share data to benchmark your performance against that of your competitors.
* Understand how the market is expected to perform over the next few years to help you plan your strategy accordingly.

Executive Summary
The retail savings market consists of a variety of different products
The market has improved over the last couple of years in terms of balances
Balances have continued to grow despite consumers beginning to pay off credit debt
The retail deposits market will continue to grow between 2010 and 2014
The threat of new and fringe players should exert some pressure on the market leaders
Tesco's push to become a larger player has seen it offering competitive rates on its savings accounts
Strong advertising expenditure is indicative of healthy competition in the market
ING Direct has spent heavily to promote its retail savings offering
Consumers are primarily attracted by the rates available on savings accounts
Rate is the key motivator for consumers taking out a savings account
OVERVIEW
Catalyst
Summary
MARKET CONTEXT
The retail savings market consists of a variety of different products
Providers use bonus rates to attract consumers to their savings accounts
Many consumers are unable to fill their ISAs due to lack of income rather than lack of financial education
Passbook accounts have become a niche offering, although there is still a market for them
Around two-thirds of the UK population have a retail savings account, with the vast majority providing instant access
Older and wealthier consumers are more likely to hold a savings product
The market has improved over the last couple of years in terms of balances
Deposit balances in the savings market have grown consistently since 2005
Holding institution balances are dominated by interest-bearing bank sight deposits
National Savings was boosted by the uncertainty caused by the financial crisis
Balances have continued to grow despite consumers beginning to pay off credit debt
Regulatory changes have had an impact on the savings market
The Payment Services Directive has sought to improve transparency for consumers
The Banking Conduct of Business Sourcebook is duplicating some PSD regulation
The ISA super-complaint has influenced the industry to improve its processes
The Independent Commission on Banking is likely to have an impact on the retail deposits market
The retail deposits market will continue to grow between 2010 and 2014
The savings market is expected to see improved performance over the next five years
The government's proposed austerity measures will impair consumers' ability to save
Under EU legislation the Financial Services Compensation Scheme will cover deposits up to around £85,000
COMPETITIVE DYNAMICS
A handful of players dominate the retail deposits market
Lloyds Banking Group dominates the retail savings market
Over time the large players have increased their share of the market
Northern Rock hemorrhaged customers when the government's 100% guarantee ended
Banks offer favorable savings rates to encourage consumers to set aside funds, which allows them to build up their capital ratios
There is an incentive for consumers to be able to lock their money away for an extended period
Lloyds, Nationwide, and Santander have tended to offer the best savings rates
The threat of new and fringe players should exert some pressure on the market leaders
Tesco's push to become a larger player has seen it offering competitive rates on its savings accounts
Virgin's effort to expand its banking presence has been a slow process
Metro Bank will not mount a serious threat to the savings market
Other new entrants are a potential threat to the industry
Strong advertising expenditure is indicative of healthy competition in the market
The top savings brands have advertised heavily in the first half of 2010 in order to maintain market share
ING Direct has spent heavily to promote its retail savings offering
Santander focuses on tradition to promote its savings account range
Halifax has pledged to pay interest immediately on ISA transfers
There has been moderate innovation in the market
Some of the large providers offer highly competitive savings accounts for those with a current account
Santander and RBS offer savings accounts targeted at first time buyers
There is some innovation around the edge of the market
Building societies are innovating their account offering in order to attract more custom
CONSUMER FOCUS
Consumers are primarily attracted by the rates available on savings accounts
Rate is the key motivator for consumers taking out a savings account
Savers tend to save less in retail deposits during middle age
Consumers value convenience, honesty, and accessibility the most in a savings account
An inability to afford to save anything is the key motivation for consumers not having a savings accountDatamonitor's FSCI survey also quizzed consumers without a savings account in order to ascertain why they did not hold one. By far the most common reason was an inability to afford to save anything, with 38.1% of respondents offering said answer by way of explanation. The other most cited reasons were a preference for paying off debts over saving (11.3%) and the economic downturn making it harder to save (9.5%). A lack of trust in the banks was the least cited reason given, which is consistent with other Datamonitor research that has shown that consumers' trust in their banks remains relatively strong despite the economic crisis. While some consumers may genuinely be unable to set aside funds each month, those who have cited paying off debts rather than saving may feel that they are being sensible given the current climate. However, it is important to have some savings to tide them over. In order to boost their deposit base providers can look to target their message towards those who feel that it is not worth saving at the moment. There are still some highly competitive rates around, and consumers should be made aware of this.
Large domestic banks dominate the breakdown of savings institutions, and this trend looks set to continue
Those on higher incomes tend to save with fewer different types of institutions
Younger consumers are the most likely to open a savings account with another provider
Consumers continue to favor the branch channel for managing their savings account
The branch is set to remain a key channel in the savings market
The online channel has plenty of potential for growth
Aggregator websites are yet to take off in the savings segment, but their convenience should increase usage
The other channels are likely to become less popular as the online channel develops
APPENDIX
Supplementary data
Market Context chapter
Competitive Dynamics chapter
Consumer Focus chapter
Definitions
AER
Methodology
Further reading
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